New angel investor relief

Angel investors for SMEs

Angel investors are the private individuals or groups that invest capital in startup companies and entrepreneurial ventures, primarily in the fields of technology and innovation. However, their investments can extend beyond these sectors, often serving as an alternative to traditional funding sources like bank loans or venture capital. In return, angel investors typically receive benefits such as partial company management and equity stakes. It's important to note that not all types of angel investments qualify for the new relief.

Standard CGT

Generally, when individuals, partnerships or trusts realise gains on chargeable assets on or after 6 December 2012, they will be levied CGT rate of 33%. Chargeable assets include properties, copyrights, patents, shares, etc. However, Finance Act 2023 has introduced a reduction on this rate for angel investors, bringing it down to 16% or 18%.

Reduced rate for qualified angel investors

Under the new rate

• The CGT rate is reduced to be 16% for individuals and 18% for investing through partnerships.
• This rate applies to gains of up to twice the initial investment value.
• There is a lifetime limitation of €3m.

This relief allows you to save up to 15%-17% on CGT compared to the standard rate. However, certain requirements must be met to qualify for this relief.

Requirements

There are three main types of requirements:

1. Qualifying investment
2. Qualifying investor
3. Qualifying company

To avail of the new rate on gains from angel investment, these requirements must be satisfied. Some key conditions include:

Qualifying investment & qualifying investors:

• The eligible shares have been held for at least three years from the date of investment.
• There are in the form of fully paid up newly issued shares of at least €10,000.
• The shares should constitute between 5%-49% of the ordinary shares.

An investment will not be qualified unless it is based on a business plan and the company shall be able to provide the copy certificates of qualification issued by the Revenue Commissioners. Please note that the investor can only have a minor share in the investee company. Relief will not be granted if you own that company while applying for the reduced rate.

Qualifying company:

• Investees should be start-ups which are innovative in nature and which are SMEs.

Start-up companies refer to companies that are less than five years old. The criteria to define an innovative company lies in GBER Article2(80) . Investees are required to pass through the qualification process with the Revenue and provide a copy of the certificate. SMEs are companies that employ fewer than 250 persons and have an annual turnover not exceeding €50m, and/or an annual balance sheet total not exceeding €43m. Additionally, investee companies must not be facing any financial difficulties.

Finance Act 2023 was signed into law by the President on December 18, 2023. Therefore, the reduced rate of 16% or 18% applies if your case meets all three types of requirements. Detailed information on the requirements and consequences of partial non-compliance is provided in Chapter 6 of the Finance Act 2023.

If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars private client team below: